Scottish business activity grows robustly, but at weakest pace in five months

Scottish private sector output expanded solidly in September but the pace of growth eased to a five-month low amid a slower rise in workloads, the latest Royal Bank of Scotland PMI index has shown.

The seasonally adjusted headline RBS PMI fell to 53.4 in September, down from August’s recent peak of 55.5.

Although this signalled a weaker increase, the pace of expansion was robust and above the survey average, and the latest data ended a five-month sequence of accelerating growth rates.

Sector data revealed the latest expansion was not broad-based, however, with manufacturers observing a slight drop in production levels, compared to solid growth among service providers. Furthermore, for the first time since June, growth at the UK level was stronger than that in Scotland.

Volumes of new work continued to rise during the latest survey period. New contract wins and stronger demand from existing clients supported the upturn in sales, according to panellists. That said, the rate of growth in new orders was only modest and below the UK average. Service sector firms recorded higher new business inflows, while the intake of new work at goods producers declined.

Meanwhile, in line with positive future output projections, employment has raised.

The rate of job creation in the Scottish private sector during September was up, albeit only modestly, and was quicker than August’s six-month low. Expectations of stronger demand pressures motivated survey respondents to expand recruitment. However, workforce numbers rose at a comparatively quicker pace across the UK as a whole.

Survey data signalled that Scottish private sector companies were able to cope with current business demands. Overall, outstanding workloads were unchanged since August.

Operating expenses continued to rise in September. Higher labour costs, unfavourable exchange rate movements, and higher food and transport costs were all mentioned as sources of inflationary pressure. Although cost burdens increased sharply overall, the increase was the softest of all 12 monitored UK regions. To guard against eroding margins, output charges were lifted in September and to the greatest extent in four months.

Optimism towards business activity in the year ahead was sustained in September. The degree of confidence strengthened amid forecasts of firmer demand and planned expansion into new markets.

Malcolm Buchanan, Chair, Scotland Board, Royal Bank of Scotland, said: “Scotland’s private sector economy continued to expand at a solid pace as the third quarter came to a close. However, growth momentum was lost, with the rate of expansion slowing for the first time in five months. This renewed slowdown particularly reflected a weaker rise in new business.

Nick Stamenkovic, RBS economist, said: “The recent improvement in business activity since the spring took a pause for breath dropping to a five month low and falling below the UK average. However, companies were sufficiently confident to boost employment albeit modestly.”